Tag Archives: investment advice

My Thoughts: An example of our insignificance in the universe; here is a short (1.10 mins) video that portrays a shower of gamma rays from a galaxy far, far away. The video was posted on a web site I often visit sponsored by NASA. Every day there is new image or video that reflects something about the cosmos and our observations of it. (Astronomy Picture of the Day or APOD)

Our daily concerns about politics and investments and economics are both real and imagined. However, in the context of the data that this video represents, and its source mega zillions of miles away, our concerns and worries are profoundly irrelevant.

The explanation from the NASA site reads as follows: If gamma-rays were raindrops, a flare from a supermassive black hole might look like this. Not so gently falling on the Fermi Gamma-ray Space Telescope, from June 14 to June 16, the gamma-ray photons, with energies up to 50 billion electron volts, originated in active galaxy 3C 279 some 5 billion light-years away. Each gamma-ray “drop” is an expanding circle in the timelapse visualization, the color and maximum size determined by the gamma-ray’s measured energy. Starting with a background drizzle, the sudden downpour that then trails off is the intense, high energy flare. The creative and calming presentation of the historically bright flare covers a 5 degree wide region of the gamma-ray sky centered on 3C 279.

My Comments: A recent report that airlines may be colluding on price is but one example of corporate excess that pervades our system. It’s not yet systemic, but given the opportunity, corporate America will take steps to advance its own cause at our expense.

After 40 years as a financial planner, I’m sensitive to questionable behavior by companies and their agents. With Rand Paul now suggesting the world is again about to end, anyone I can reach needs to be careful and know how to respond to those who step in your space and try to take your money. I echo the authors comments about the two named personalities; there is typically a collective groan at financial symposiums whenever their names surface.

by Brian Kay, Leads4Insurance.com, January 2015

This video is a great interview with Helaine Olen, author of the new book “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” The interview – and her book for that matter – really sticks to it the talking heads of the personal financial industry such as Suze Orman and Dave Ramsey.

First, she calls out Orman for suggesting that people put all their savings in the stock market, a strategy Orman does not employ to her own finances out of concerns for stock market volatility.

More broadly, Olen objects to the idea that one person can give blanket advice to millions of viewers and readers.

“The idea that anybody can give specific advice to millions of people… it doesn’t really work. We’re all specific. We are not archetypes,” Olen said.

Bingo.

Every person has a different income than the next. Different needs embedded in their tightly woven budgets. Different plans for retirement. Different levels of comfort with savings and investing.

And it should be mentioned that all those talking heads are millionaires. It’s much easier for them to say, “Paying down all your debt is your number one priority” when they can immediately do so with the change in their couch cushions.

Real people are living under the economic pressure that hasn’t seemed to let up on those living and working on the ground level of our economy. They rely on credit for medical emergencies, unexpected repairs to their cars and homes, or to help them get through a long drought of unemployment.

Though I am not a big fan of her financial recommendation to “always buy indexed funds,” I strongly agree with her assertion that our financial problems stem from a culture that avoids having frank conversations about debt and savings.

If you are like me and can’t standing seeing flocks of people led astray by these “experts,” take solace in knowing that you provide an antidote to our culture’s financial problems.

By that, I meant that you provide honest, frank discussions with clients about their personal finances, savings and debt. You provide personalized financial advice to them for their – and only their – situation.

Not only do you provide that ideal financial solution, your solution is less complicated, more applicable and more trustworthy.

A book can’t ask a person what their biggest financial concerns are. A talking head on TV can’t say something relevant to everyone watching (though they think they are).

A book can’t build up enough trust with clients to hold them accountable to achieving their stated financial dreams. A talking heard can’t follow up with prospects after initial meetings via phone, e-mail or snail mail.

And neither can answer a call or text from clients when they have questions.

My hope is that you use this as ammo to keep fighting the good fight and to dare to ground people who are lead into the clouds by famous “experts” and dropped without a parachute.

My Comments: This article comes from January, 2009 and was written by Nick Murray. Two months later, the bear market that started in mid 2008 was over, though it took some time to realize.

Meanwhile, we’ve been in a bull market for over six years now, and many are suggesting we are overdue for a correction. These comments will help you better understand how this is all going to play out.

By Nick Murray, January, 2009 (gratefully used without permission; I have no idea where it was published)

This material is loosely adapted from my forthcoming book, Behavioral Investment Counseling. Bits and pieces of this material have certainly appeared, explicitly and implicitly, in this newsletter over the years, and will not be unfamiliar to longtime readers. They are collected, synthesized and offered here in the interest of rushing some more long-term perspective to the front lines in the current pitched battle against panic.

A bear market, as I’ve suggested elsewhere in this issue, is a period of time during which people who believe this time is different, sell their common stocks at panic prices to people who understand that this time is never different. The very first truth of bear markets – the perception after which we must order all our other perceptions – is that all bear markets are fundamentally the same.

If and to the extent that this is true, the question then becomes: in what identifiable (and therefore predictable) ways are they all the same? What can we know about a bear market as we are going through it – despite all its apparently unique terrors – which will never fail to restore our perspective and defeat the urge to capitulate? I believe that there are four such immutable truths.

(1) Bear markets are an organic, natural, constant element of a never-ending cycle. The capital markets are capable of perfectly psychotic behavior — constrained only by their capacity for emotional excess — in the relatively short term (a year or two; rarely more). In the intermediate to longer term, the capital markets in general and the equity market in particular are powerless to do anything but reflect the underlying economic fundamentals.

And as long as human nature is the essential driver of all economic activity, economies will alternately cycle above and then below their long-term sustainable trendlines — overshooting their capacities in optimistic expansions, and then undershooting them in frightened contractions. The dot.com bubble is an example of the former; the great unwinding of 2000 – 2002 the latter. The cheap-credit-fueled real estate/mortgage bubble of 2003 – 2005 typifies the former, and the current unpleasantness the latter.

Human nature being what it is, any economic enterprise worth doing is worth overdoing, and the capital markets must follow not just a similar but the same cycle of euphoria and panic. We have met the enemy, as Pogo Possum said all those years ago, and he is us.

(2) Bear markets are as common as dirt. We are currently struggling through the thirteenth bear market (which I and most others define as a decline in the broad market of about 20% on a closing basis) since the end of WWII. Thirteen episodes in 63 years seem to imply that they occur on an average of about one year in five (though with lamentable irregularity). At that rate, you’ll see eight of them in a 40-year career of working and saving, and six more in the average two-person retirement.

One had better get used to them. Moreover, since their beginnings and endings are impossible to time, one had better develop the emotional maturity and financial discipline to remain invested through them.

(3) Equities’ great volatility is the reason for, and the driver of, their premium returns. “Volatility” does not, other than in the hyperbolic lexicon of catastrophist journalism, mean “down a lot in a hurry.” (Nearly four years in five, equities go up a lot — quite often in a hurry — but journalism somehow never characterizes such markets as “volatile.”) Rather, volatility refers to the extreme unpredictability — up and down — of equity returns in the short term.

For example, you have not only never seen but cannot even imagine bonds providing a 20% total return in one year (through a combination of interest and price appreciation), and then posting a 20% negative return the next year. You would intuitively say that bonds just aren’t that volatile, and you’d be right.

Equities do it all the bloody time. Equities are that volatile. You just never know what they’re going to do from one period to the next. And the premium returns of equities are an efficient market’s way of pricing in that ambiguity. There are no good markets and bad markets; there is one supremely efficient market. And its way of dealing with equity volatility is to demand — and get — returns which have nominally been about twice those of bonds, and — net of inflation — real equity returns that are nearly three times greater. Premium equity volatility and premium equity returns are thus two sides of the same coin.

Take care then, in moments of great stress such as the current environment occasions, not to wish away the volatility of equities, because you are, whether you realize it or not, wishing away the returns.

(4) A bear market is always — repeat, always — the temporary interruption of a permanent uptrend. As I write, the broad market, as denominated in the S&P, is in the neighborhood of 1200, late in the thirteenth of these very common ends-of-the-world (for so each and every bear market is characterized by the media). The tippy-top of the market the night before the onset of the first of these thirteen cataclysms — May 29, 1946 — saw the S&P close at 19.3.

Think of it, dear friends: from the peak before the first bear to something approaching the trough of the thirteenth, stock prices alone (ignoring the compounding of dividends) have risen more than 60 times in about as many years. And why? Because earnings are up 60 times — and, in this great golden age of globalizing capitalism, they are of course still going up. The advance is permanent; the declines are temporary. Always.

But mustn’t there be some way of defending capital against these horrific if transitory episodes? Must there not be some formula, some reliable strategy for taking capital out of harm’s way? As a matter of fact, no.

Bear markets begin and end often, but not regularly: there is no consistent way of anticipating when an ordinary market correction will deepen into a genuine bear, nor when — having done so — the bear market decline will run its course. Peter Lynch wrote something to the effect that more money has been lost by people trying to anticipate and avoid bear markets than in all the bear markets themselves. (This is the equity market corollary of Paul Samuelson’s observation that the consensus of economists had forecast nine of the last three recessions.)

Bear markets are so irregular and evanescent, and bull market advances so powerful and long-lasting, that trying to time the market becomes the ultimate fool’s errand: it is a formula for long-term returns which are a fraction of the market’s. Churchill famously said that democracy is the worst form of government ever formulated by man, except for all the others. Buy-and-hold is, in exactly the same sense, the worst equity investment strategy ever devised by man.

My Comments: There is no doubt that both politicians and financial people generate success by evoking fear in those to whom they are talking. Sometimes it’s legitimate, but much of the time its BS designed to persuade you to part with your vote and/or your money. What follows here is consistent with my belief that while there will be another downturn, it’ll be nothing like the last one.

Corey Stern Jun. 20, 2015

Since World War II, the average expansion period for US gross domestic product has lasted less than five years — and the current expansion is now in its sixth year. Does that mean we’re due for another recession?

The GDP slowdown in Q1 of this year had some economists fearing that a recession was near. But recent strong economic data has calmed those fears.

Recessions don’t just happen because they are overdue; they need to be induced by some event.

In a note Thursday, Dario Perkins of UK-based Lombard Street Research pointed to the stock bubble as the most likely cause for an upcoming “lesser recession.”

“Asset prices have risen sharply over the past five years in response to low long-term interest rates and aggressive central bank stimulus,” Perkins wrote. “This presents an important risk to the global economy, perhaps the most likely trigger for the next recession.”

He added, on a positive note, that unlike the most recent economic downturn, the next one would likely only be tied to stock prices. This is because while stock values have skyrocketed over the past few years, home values in developed economies have made modest gains. Though a stock market crash would be a bad thing, it wouldn’t nearly have the same effect on GDP a housing market crash.

Think dotcom bust, not global credit crisis

Perkins illustrated his point by comparing the effect on GDP from both the dotcom crash and the subprime-mortgage crisis. During the dotcom bust, which didn’t affect housing prices, GDP continued to rise for the most part in the quarters following the stock market peak.

He also pulls research from the Bank of England showing that credit trends, while very similar to the trajectory of the business cycle, have peaks that are twice as large and twice as long. The worst recessions are those that coincide with a credit crunch, as in 2009. But we are still in a credit upswing since then. In other words, the next recession isn’t likely to be accompanied by a credit bust, which will further mitigate the harm done.

The next downturn will also be protected by the still sluggish recovery from 2009. That is, there are fewer imbalances, less systematic risk, less household debt, and less bank leverage.

A more mild recession will be good for central banks that have limited tools left to respond to an economic crisis. Interest rates — already near zero — can only go so much lower, and a very high benchmark would be needed to justify restarting QE.

Perkins explains: Suppose, for example, the next recession is caused by the bursting of a bubble in equity prices. Would QE be able to reverse such a decline? And if central banks were blamed for causing this bubble, would they be willing to try to reflate the bubble with the same policy? Obviously we can only speculate about this, but it is clear both the Fed and the Bank of England were anxious to stop doing QE because they were concerned about its potential impact on financial stability.

In short, while Perkins thinks a stock market crash could cause a recession soon, the effects will be nothing like those felt in 2009.

My Comments: Interest rates change. For the past 35 years, they’ve been on a downward trend, matched only by the down trend from 1861 to 1898. It’s a given that the Fed is going to start moving them up, probably in September. A stream of positive data supports a September rate hike, but summer storms loom on the horizon.

One thing you should NOT DO, is believe the message offered by Ron Paul as seen on TV lately. Scott Minerd, the author below is a far better predictor of what is coming. Paul is now just another shill for Wall Street firms that want you afraid so you send them your money and charge you fees. The only thing he can guarantee is that your account will be charged for whatever services they claim to provide.

A popular rule of thumb for defining a recession is two consecutive quarters of negative growth. As we all know, the U.S. economy shrank by 0.7 percent in the first quarter. Since then, a steady flow of positive economic indicators has successfully removed any concerns that U.S. economic activity is diminishing, confirming that the ruminations of recession based on the first quarter’s soft patch were entirely overblown.

As the U.S. economy resumes its upward march, the Federal Reserve is becoming increasingly convinced that the environment is strong enough to begin raising rates. Core inflation has increased at a 2.4 percent annualized rate through the first five months of the year, above the 2 percent goal the Fed has been saying inflation needs to reach in order for it to tighten monetary policy. This is additional confirmation that a September increase in rates is still on track.

This week, the Federal Open Market Committee (FOMC) confirmed this hypothesis in what can be generally described as a more dovish outlook for the long term, but one that clearly puts September in the crosshairs for an interest rate hike after six long years at the zero bound. The Fed’s “dots” represent where Fed presidents and governors believe short-term rates will be in the future. The market is getting more intensely focused on this rather obscure piece of information, and with good reason. In March, the last time the dots were released, the market rallied because of the unexpected decline, reflecting an expectation of lower short-term rates. This time around, the Fed did the same and U.S. stocks rallied once again, albeit modestly.

As far as the rest of the world is concerned, pressure is on China to reflate and on Europe to remain strong in the face of floundering negotiations with Greece. Volatility is a constant companion. While Europe is fairly well insulated against a collapse in the Greek economy, a breakdown in talks could cause bonds on the periphery to sell off hard, and lead German bunds and U.S. Treasury securities to rally.

In the United States, the market is starting to show signs of a summer slowdown. We’re seeing evidence of this in the subdued performance of equities, the negative performance of the high-yield bond market during the first two weeks of June, as well as in the lack of new money flowing into mutual funds. The bottom line is we are becoming vulnerable to some sort of summer risk-off trade.

While I remain generally positive on U.S. equities over the next two to three years, I think it is very likely that we are going to have some sort of a nasty market event during the course of the summer. At this stage, it would be prudent to prepare for a risk-off period by the opportunistic liquidation of lower-quality high yield and bank loans, which have appreciated in price this year, and selectively taking gains in stocks while increasing holdings in cash and Treasury securities, as a precaution in preparation of a potential looming summer dislocation.

The most recent Federal Reserve dot plot—a projection of where individual policymakers on the FOMC expect the fed funds rate to be at the end of each year—showed a more dovish stance compared to March. The median expected rates for 2016 and 2017 were lowered by 0.25 percent to 1.625 percent and 2.875 percent, respectively. While the median projection for 2015 remained unchanged at 0.625 percent, the number of members predicting rates will stay below 0.5 percent by the end of the year increased from three to seven. Despite its rather dovish stance, the Federal Reserve remains on track to end its zero-rate policy later this year, as 15 out of all 17 members indicate that a rate hike is likely before the end of the year.

My Comments: I’m already very tired of this story. But given we are near the start of the next presidential election cycle, it’s not going away. Too bad.

Articles like this one serve to improve my bulls@@t meter as I’m assailed by the media and bombasts trying to persuade me they are the ONLY ONES QUALIFIED TO LEAD THIS GREAT COUNTRY! Much of the world sees us as evangelical narcissists, intent of imposing our lifestyle on them whether they like it or not.

Personally, I’m increasingly ok if they want to kill each other off. Just don’t pretend we have to be involved for humanitarian reasons when the real agenda is higher profits for corporate America.

I see a parallel here as you consider the ease and frequency of divorce in our society. In years past, there was more pressure for the principals to work together to keep the emotional and financial cost to a minimum. Now we instead just threaten to kick some ass so the other side will bend to our will.

By Jamelle Bouie May 19 2015

For the last week, liberals and conservatives have been arguing over the Iraq war. They agree that it was a mistake. But where liberals see lies and misinformation—“America invaded Iraq because the Bush administration wanted a war,” writes Paul Krugman—conservatives see an honest error. “[C]learly there were mistakes as it related to faulty intelligence in the lead-up to the war and the lack of focus on security,” said Jeb Bush in one of his four follow-ups to a now-consequential question on the Iraq war last week. “The intelligence was clearly wrong,” said former CEO Carly Fiorina, “And so had we known that the intelligence was wrong, no, I would not have gone in.”

Outside of the presidential race, conservative writers have tried to highlight the “honest” part of the mistake by emphasizing the national consensus around Saddam Hussein and weapons of mass destruction. “Though certainly not unanimous,” writes Matt Lewis for the Daily Caller, “the truth is that there was a strong bipartisan consensus that Iraq had WMDs. This included President Bill Clinton, Hillary Clinton, Al Gore, and even Nancy Pelosi.” Lewis ends there, but the intended argument is clear: You can’t accuse Bush of misleading the public when everyone, independent of the administration, also believed that Hussein had weapons of mass destruction.

Except that you can. As Jonathan Chait notes for New York, “misleading the public” into a war of choice isn’t mutually exclusive to having faulty intelligence, especially given the official conclusion that “the administration repeatedly presented intelligence as fact when in reality it was unsubstantiated, contradicted, or even non-existent.”

As Chait writes, “The Bush administration was the victim of bad intelligence, but also the perpetrator. Its defense lies in pretending that those two things cannot both be the case.” And at Mother Jones, David Corn points to the long trail of evidence showing the extent to which Bush officials exaggerated existing evidence and actively deceived the public about Iraq’s threat to the United States. Not only did Vice President Dick Cheney insist there was “very clear evidence” Hussein was developing nuclear weapons (there wasn’t), but he—along with President Bush and other members of the administration—worked to link Hussein to the terrorist attacks on Sept. 11, 2001. “In November 2002,” notes Corn, “Bush said Saddam ‘is a threat because he’s dealing with Al Qaeda.

But there’s more to this dispute than the details of the run-up to the Iraq war. Conservatives don’t just want to avoid the extent to which the invasion was an active decision and not the passive result of “faulty intelligence.” They also want to enshrine the underlying logic of the war. The argument that the Iraq war was an honest mistake from bad assessments is also an argument that the invasion was the proper response to the potential threat of a WMD-equipped Saddam. It’s an endorsement of the Bush-Cheney strategy of “preventive war.”

The consensus over the presence of weapons in Iraq wasn’t a consensus to invade.

To that point, Sen. Marco Rubio flatly states that Iraq “was not a mistake” because “the president was presented with intelligence that said Iraq had weapons of mass destruction, it was governed by a man who had committed atrocities in the past with weapons of mass destruction.” Hussein’s brutality, in other words, was justification enough for the invasion. Likewise, in an interview with Bloomberg, Elliott Abrams—a former foreign policy adviser in the Bush administration and adviser to Rubio—said that “the proximate cause of the invasion was the intel about WMDs.” The intelligence, in other words, compelled the invasion. Anyone else would have made the same choice.

But they wouldn’t have. In his speech against the Iraq war authorization bill, then-Wisconsin Sen. Russ Feingold agreed that Saddam posed “a genuine threat, especially in the form of weapons of mass destruction,” but didn’t think this required a new war:

Mr. President, I believe it is dangerous for the world, and especially dangerous for us, to take the tragedy of 9–11 and the word “terrorism” and all their powerful emotion and then too easily apply them to many other situations—situations that surely need our serious attention but are not necessarily, Mr. President, the same as individuals and organizations who have shown a willingness to fly planes into the World Trade Center and into the Pentagon.

Other opponents, like Al Gore, made similar statements. “It is reasonable to conclude that we face a problem that is severe, chronic, and likely to become worse over time,” said the former vice president of international terrorism in a September 2002 speech, “But is a general doctrine of pre-emption necessary in order to deal with this problem?

With respect to weapons of mass destruction, the answer is clearly not.” Millions of Americans—upward of 40 percent—agreed. And to this you can add the scores of analysts, journalists, and wonks who sharply disagreed that a war was needed to keep Iraq from distributing or using nuclear, chemical, or biological weapons. Writing in National Review, for example, one Cato Institute scholar made the sensible point that Hussein had no incentive to give away the fruits of a nuclear program: “Baghdad would be the immediate suspect and likely target of retaliation should any terrorist deploy nuclear weapons, and Saddam knows this.” His conclusion? “There’s certainly no hurry to go to war. Nothing is different today from September 10, 2001, or any time since Iraq was ousted from Kuwait.”

Present arguments aside, the consensus over the presence of weapons in Iraq—and even Saddam’s threat to global security—wasn’t a consensus to invade. The intelligence didn’t compel a war; the Bush administration started one.

And if today’s Republicans can’t admit this, it’s because they haven’t abandoned the doctrine that brought us our disaster in the Middle East. Given our tense negotiations with Iran—and the degree to which the entire GOP presidential field wants to abandon engagement in favor of confrontation—a future Republican president may resurrect the same Bush-era arguments with the same distortions, the same hyped threats, and the same calls to act now, regardless of all the things that could go terribly, catastrophically wrong.

My Comments: I’ve talked before about immigration issues. As an immigrant myself, I’m perhaps more sensitive to these issues, even though I arrived as a child from Europe. My father was looking for a better way to provide for his family and since he had lived here as a child and had a degree from LSU, the US was the logical place to live.

For me, the upcoming presidential election is less about the ability to shout slogans than it is about choosing leaders with a fiduciary mind set with respect to ALL people living here. Too many candidates to this point are like many life insuarance agents I’ve come across over the past 40 years. They were trained to tell you anything you wanted to hear. Their primary motivation was to have you sign an application and a check so they got paid. If what you were sold was in your best interest, that was simply an incidental benefit, not the reason for the sales effort.

by Cynthia Tucker May 30, 2015

Undocumented immigrants have lost another round in federal court. So has President Obama, who has attempted to put in place an enlightened policy that would delay deportations for some 4 million illegal border crossers, many of them young people who think of themselves as Americans.

But several days ago, a panel dominated by conservative judges reaffirmed an earlier ruling that blocked the president’s executive order from going into effect. That means Obama’s plan to sidestep Congress and grant temporary quasi-legal status to qualified undocumented immigrants is in trouble.

Predictably, many Republicans are exulting. They have blasted Obama’s executive orders as despotic, and many of them play to their ultraconservative base by bashing immigrants without papers. They see the court rulings as justifiable limits on a president whose policies they abhor.

Yet, these court rulings on immigration have hardly done Republicans a favor. In fact, the decisions are likely to prove a major headache for GOP presidential primary candidates, who are already suffering a poor reputation among Latino voters.

Since Mitt Romney’s defeat in 2012, Republican strategists have attempted to repair the party’s image among Latinos, urging their major political players to adopt a more favorable policy toward illegal immigrants. They know that Mitt Romney was haunted by his rhetoric favoring “self-deportation”; Latinos supported Obama over Romney 71 percent to 27 percent.

Still, Republicans have had difficulty reaching out to them. Most of the presidential candidates have tried to keep quiet on the issue of illegal immigration, hoping not to be caught in the sort of misstep that Romney made, but also trying not to alienate their primary voters.

Among the major contenders, only Jeb Bush, former governor of Florida, has been outspoken in advocating a compassionate approach to illegal immigrants. Speaking at an April event celebrating his father, Bush said: “Yes, they broke the law, but it’s not a felony. It’s an act of love. It’s an act of commitment to your family. I honestly think that that is a different kind of crime that there should be a price paid, but it shouldn’t rile people up that people are actually coming to this country to provide for their families.”

But even Bush has soft-pedaled on a significant point, according to Washington Post blogger Greg Sargent: “(Bush) has also retreated to a safer position, hinting he agrees we must secure the border before legalization.”

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